Friday, July 31, 2009

What to say? Chance are we have entered a brief period of suspended animation during which time all manner of divergences among various technical measures corresponding with the most recent manifestation of the market's massive short squeeze unfolding since March '09 bottom — a probability whose likelihood was projected way back last November 1st — likely will develop.

Then what?

Obliteration. Collapse. Chaos. Discrediting.

Presently, we're seeing previously purchased call options exercised (i.e. converted into long equity positions). Likewise, these new positions are being hedged with put options. This is occurring in a climate where time's passage is providing enough confidence that, with no small measure of help from the Chicago Mercantile Exchange, a new, massive wave of selling is made to appear unlikely.

This is all well and good ... and could sustain the present push higher for some days. But once expiration rolls around then what? Well, either hedges will be rolled forward (a costly proposition) or in all probability long positions stand vulnerable to being sold in a cascading wave of profit taking and/or loss mitigation.

So, keep your eye on the ball, and pay no mind to those on the playing field shouting, "Swing!" Today's bid largely is enticed, and this, itself, is revealing. Were stocks truly "oversold," there would be no need to placate those who perceive opportunity. That those interests behind today's bid are being placated — sold calls and given favorable conditions for exercising these rights — reveals stocks in all probability are being distributed from strong hands to weak.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Thursday, July 30, 2009

We are afflicted by a disease more threatening than AH1N1 and more advanced than HIV. It is incompetence of the highest order. And there is but one way this can persist. Like all viruses, it must violently take hold of the host upon which it thrives. This is, in fact, only natural.

So, tonight, here is my wonder...

Who/What presently stands like Ernst Röhm? Who/What — once useful to a filthy cause (key!) — now must be disposed of, because it otherwise could threaten the halt of that long-forming, dirty trend's further ascendancy?

For that vile thing — terribly vulnerable (like Hitler early on) — it is kill or be killed, literally, because its vulnerability, indeed, has become incalculable.

Who/What (at least in principle) could contain such a beast? Who/What — were it not so afflicted with this incompetence disease — could take away that vile, dying thing's one and only ace up the sleeve? Who/What, then, does the wounded beast likely target?

In this Wall Street sub-world we inhabit as fleas (and that's all we are, folks, you and me) ... who/what for decades has been so purposely portrayed a villain ... a scoundrel ... a confounder of free markets? Who/What have most been conditioned to revile?

The question now is will the coming run on Treasury be the coffin containing the Constitutional Republic of the United States of America ... or will it rather be the nail sealing it shut within the dustbin of history?

The setup is complete. Those hallowed institutions claiming to have saved us all from Depression are in perfect alignment for complete discrediting. How better to precipitate insurrection once that which is vital — republican government —is proven terribly incompetent, once and for all?

The masses who, themselves, have been made thoroughly incompetent as well, are prepared to play their part. In this sub-world we inhabit these are the bean counters whose love of the balance sheet supersedes life, liberty and the pursuit of happiness.

Are you reading other financial/investment blogs? There's a sea of overtly fascist wannabes who are a clear and present danger...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Wednesday, July 29, 2009

How sweet and lovely dost thou make the shameWhich, like a canker in the fragrant rose,Doth spot the beauty of thy budding name!O, in what sweets dost thou thy sins enclose!That tongue that tells the story of thy days,Making lascivious comments on thy sport,Cannot dispraise but in a kind of praise;Naming thy name blesses an ill report.O, what a mansion have those vices gotWhich for their habitation chose out thee,Where beauty's veil doth cover every blot,And all things turn to fair that eyes can see!Take heed, dear heart, of this large privilege;The hardest knife ill-used doth lose his edge.—William Shakespeare, Sonnet 95

Oh, you wild and crazy bulls! That there is considerable evidence bringing to light the truth of your fantasy, "where beauty's veil doth cover every blot, and all things turn to fair that eyes can see," lends this more thoughtful observer objectivity in eloquence likewise calling you out.

This post's title but more crudely speaks metaphorically of how "the hardest knife ill-used doth lose his edge." Blind guides! Your large privilege in freedom to speak intelligently and truthfully instead is leading blind followers into a ditch, and for this no condemning word from me will be necessary in the hours ahead.

Righteous wrath, instead, only brings fair warning...

You claim risk capital is fleeing safety and moving into equity...

However a 0.175% yield on the planet's safest security — backed by tons of fissile material no less — belies your argument.

Just look at the trend that's the risk averse investor's friend here. And when was the last time this one came up against its 200-day moving average? Heads up, then!

And eyes wide open, too. For all your bullish blather about a steepening yield curve rather speaks of fading confidence in the lender of last resort's longer-term viability.

Any profound loss of confidence on the short end of the yield curve — given the profound loss of sanity in policy making — and we might just be treated to such monstrous deception as makes your "new bull market" fantasy sublime in comparison. A little meat to go with yesterday's hot potato.

So, there you have it, delusional bull. I wish I could say I hate spoiling your date with Mary Palmer. But I don't regret giving sight to those you otherwise would blind...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Tuesday, July 28, 2009

Amazing how myopic is today's bullishness, completely enamored with price and oblivious to the many demonstrations of persistent underlying technical weakness.

Have no doubt. There is great danger present. Quite simply, it exists in the risk of some "unforeseen" shock.

Consider the political theater whose absurdity was highlighted yesterday. What's an aristocrat to do? All that has gone into building up the facade of credibility — the efficiency of the free market, the potency of Federal Reserve and the power of the institution of the Presidency — is crumbling before the very eyes of all the world. This while much illusory wealth hangs in the balance. Clearly, the facade needs a face lift.

So, I wonder, how better to accomplish this than some sort of earth shattering event ... something to direct focus on the efficacy of sacrifice for the sake of maintaining an inequitable status quo?

This is, after all, what every political move thus far since the collapse of structured finance has been engineered to accomplish.

Monstrous bailouts of bankrupt financial institutions ... a crudely varnished attempt at gutting the health care system ... all are intended to instill sacrifice for the sake of maintaining a ruinous status quo.

The effort is meeting intense resistance, too. So, this begs the question, then. Have all peaceful means been extinguished?

Now, this really is no place to be speculating on what forms calamity might take. Well enough is the fact that, amidst oblivious disregard for the fundamental bankruptcy of the global financial system and the growing ineptitude of staid institutions of power to effectively deal with this — honestly and with purposeful will to maintain the peace — the market's technical condition plainly is ripe for a negative surprise...

Fast Money's Timmy Seymour would be "amazed" if we saw a pullback of more than 5% from here. At levels displaying both over-extension and puzzling divergences? Nice call, Poindexter!

Contrarily, I'd be amazed if sometime over the next week or so, we don't see a pullback of 5% or more in a single day at the open. All the evidence is on my side. But if it's fantasies and fairy tales you prefer, be sure to watch today's "Word on the Street."

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Monday, July 27, 2009

What to make of all the political theater? It matters, particularly with Team Busted turning lamer by the day ... as its endeavoring — pathetically promoted — drowns in an extremely restless and tumultuous sea of dissent.

First, some very useful backdrop...

In his first week in office FDR rescued the entire banking system. The Taller, Tanner, Herbert Hoover crew? Why in just six months time they've made permanent the ban on naked short selling. What progress! It's change we can believe in, huh.

Surely, the Financial Times of London backed the right man, because that uptick rule on short selling still is nowhere near being restored.

Investors and lawmakers have been clamoring for the SEC to put new brakes on trading moves they say worsened the market's downturn starting last fall. SEC Chairman Mary Schapiro has said she is making the issue a priority.

Yeah, right, a priority. If I were President, I would have two-and-a-half words for Ms. Mary Schapiro...

You're fired!

But I'm not President. Just a dumb box of rocks who happens to enjoy political theater, particularly the act where people in positions of great responsibility are doing their best "Frank Burns" for the benefit of the gifted mind that finds humor in unmistakable tragedy.

Ya think, Eliot?(!) And how do you suppose the Chinese feel about this? I'll bet they just get the warm fuzzies, and cannot help but be in the mood for more lecturing on the need to open up their financial markets, this coming from their bankrupt beneficiary.

(More evidence the play is a tragic comedy... I searched for a story to link to the word "lecturing," because I distinctly recall CNBC this morning reporting Treasury Secretary Geithner scoring the Chinese on the need to open their financial markets. Yet all I found was a story reporting, "No side is demanding too much," quoting a Chinese authority. Was CNBC, then, simply going to bat for its globalization junkie mother ship, presently strung out on a boat load of CMBS?)

This is some serious dope, folks. See through the smoke. As soon as the Chinese figure out how we got so madly insane without the help of opium, Ben's hyperinflation bluff could be brazenly called with an angry torrent of Treasury sales on the open market. After all, what card carrying Communist can respect a thug-wannabe who struggles to extort loot from mom and pop in their old age?

And on this note, surely, I am not the only one wondering what Mike Milken was doing on Maria Bartiromo's box of pretty rocks panel, blessed by the President, pushing for health care "reform"... Was Milken there for dramatic effect? Sort of like Michael Corleone's body guard? Remember his fate in Havana? The "reform" effort has D.O.A. written all over it.

E` tu, stock market?

So, you see, in a bull market RSI can gradually push into solidly overbought territory ... whereas in a bear market rally, short squeeze style, RSI burdens under the weight. This could be a telling indication of how soon $SPX collapses.

Given the magnitude of the market's monster move off March bottom, best absolute RSI readings thus far are, shall we say, suspicious. In other words, where's the beef? This reeks something's not right.

If those mistakenly holding in the spirit of denial and complacency — those not offering shares for sale out of fear, and thereby laying the foundation of the wall of worry with increasing volume — likewise are not buying with some increased measure of intensity resembling the bullish "walk" that matches their "talk," which presently is spoken fearlessly holding long positions, then you might say we have us a three legged chair all ready for Potsy to sit on it. Happy Days. At least for a bear...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Friday, July 24, 2009

It was published on March 23, 2009 and was meant to show a "like from like" similarity in NASDAQ Composite behavior, comparing the green area with the red.

Prior to the past two weeks' trading I never would have thought to present this chart again. I never would have suggested while the market was turning over late-June through early-July that, simply because this view once was presented, the "like from like" possibility it highlighted must be the way forward.

If there is anything vexing about developing a stock market forecast, it is finding the right balance between conviction and flexibility. Although accurately projecting every twist and turn will forever be an exercise in futility, having some better sense of the big picture is by no means folly, as long as an appropriate measure of flexibility consistently guides one's view.

This is to say that, because nothing is set in stone, one's sense of the big picture should be subject to alteration, as conditions dictate. Such need could, indeed, develop in an instant!

And with this in mind, I am here to report that, not one thing to date challenges the extraordinarily negative outlook the above chart was intended to present.

Although my near-term outlook was quite positive at the time the above NASDAQ Composite chart was published, the big picture perspective presented then was intended to show that, much as the market's decline from October '07 - March '08 was a precursor to last autumn's disaster, the market's larger decline from October '07 - March '09 similarly stood as a precursor to an even bigger collapse.

I don't want to make too much of this "like from like" thing, but COMP's recovery, March - May '08, covered nearly .618 of what was lost from October '07 top. Were the current recovery off March '09 bottom to be "like" last year's, a further advance to the vicinity of 2200 could be in store. This likewise would result in nearly .618 of what was lost from October '07 being recovered.

Only a wack job would claim this further move higher is impossible, given the present environment!

Yet, too, only a wack job would claim a recovery that has moved this far, this fast, given the present environment, is anything but a short squeeze of historic dimensions! Only a wack job would call this a "new bull market."

RSI behavior speaks volumes on behalf of the current recovery being a massive short squeeze. Two profound relative strength surges in very short order since March '09 bottom form the very words.

And of momentum — MACD — what does it speak? Of a limited and waning (diverging!) drive to carry COMP higher.

Who knows what will happen over the next several days. I could develop reasons why a further, straight line rise is unlikely. But after these past two weeks? Why bother. Besides, it really is the big picture that counts here.

And troubling underlying disparities whose simple evidence is unmistakable speak volumes about a pending collapse equally as proportional to the whole of what transpired October '07 - March '09, much like last autumn's disaster similarly was proportional to the October '07 - March '08 decline.

My denial and complacency thesis is no minor consideration here. Their presence at this moment in time "fits" the big picture wherein I believe "the Dow Jones Industrials Average could fall to 3600 tomorrow and still remain in a long-term uptrend."

Indeed, this prevailing sentiment ... objectively identified ... seen in the context of an ongoing correction of a multi-decade advance (1974-2000) ... is custom made for those who wish the market to sound an alarm bell when there's trouble brewing.

The message is loud and clear. It provides a frightful backdrop to one technical reason why Dow 3600 might be too optimistic a target...

It was in the year 1994 when Dow 3600 was last seen. This corresponds with the green line drawn above on the long-term chart of the NASDAQ Composite Index.

Now, just keep that line in the back of your mind and consider the fact that COMP has not yet fallen below its 2002 low, which is more than can be said for the NYSE Composite...

Nevermind for now the fact NASDAQ clearly is leading the NYSE lower. Substantiation is found both in price action since Y2k, and in the fact COMP has broken its long-term uptrend line, whereas NYA's remains intact.

NYA's decline, May - July '08, took the index below its low set earlier in the year.

Not so the NASDAQ Composite Index. It, contrarily, held above its March '08 bottom.

Then, following this move lower, COMP rallied like a champion, whereas NYA was comatose.

And look what came next...

Collapse.

Now, consider last year's performance disparity in the context of similar action relative to the 2002 low. And don't forget the bigger picture: how NASDAQ is leading the NYSE lower, as noted earlier.

What do you think might happen next?

If you believe this performance disparity is the face of denial and complacency (much as it proved to be last year), then I think you'll agree a terrible, terrible collapse could be right around the corner.

And levels last seen in 1994 might be no match for the looming danger...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Thursday, July 23, 2009

Is there suddenly some reason to no longer couch my analytical viewpoint in perspective revealing the existence of investor sentiment that's ultimately bearish? Does the altered complexion of today's advance somehow challenge my negative, longer-term outlook? Have I been mistaken identifying the presence of denial and complacency, the likes of which has been objectively established via analysis of actions (or lack thereof) involving the movement of money in the stock market?

I am afraid not.

In fact, today's slight pickup in buying interest and improvement in underlying technical condition (particularly with certain NASDAQ measures) ... occurring at this juncture, after many preceding days highlighted by a suspiciously juiced [futures] bid whose positive impact was sustained by a notable absence of such worry as typically brings increased selling during bull market advances ... only gives teeth to the view that, denial and complacency, indeed, largely characterize the present psychological climate in the stock market.

This, I submit, confirms the market's present advance is but a counter-trend rally in a still-unfolding bear market. Likewise, the end of this advance now appears at hand. What's more, I am afraid we could be on the verge of witnessing a terrible, terrible collapse.

Truly, this is not what I want. I loathe the thought of chaos. Even now I mourn those whose lives likely will be lost were this worst case scenario to unfold. Yet tonight I once again fear that, Dow 3600 could prove much too optimistic a bear market target.

Funny ... when the market peaked in early-January [relatively muted] volume accompanying the final move higher off November '08 bottom maxed out the day top was reached.

Funny ... something quite similar appears to have culminated today. As alluded to above, volume did pick up, indicating increased buying interest (as well as healthy worry among today's sellers). Yet this increase was, in fact, only slight. Seen in comparison with volume registered during the greater bulk of the market's counter-trend rally off March bottom, today's volume remained relatively light.

So, should this final burst of exuberance similarly end as badly as earlier this year, the only thing funny to come of it probably will be those who tell the Shempster where to stick his bear stuffing. Truth is something much more severe than the pullback he's anticipating appears in store...

Uh, do you see any disconcerting parallel the present moment shares with the fateful month of May '08, when a prior bear market counter-trend rally peaked and was followed by five wicked waves down?

Funny ... relative strength measuring the improvement in the NYSE New High - New Low Differential in May '08 exceeded the same at the time the bear market began in October '07. And this while the momentum of improvement was fading.

Funny ... much the same circumstance exists right now. Knowing what happened last year, is not denial and complacency, in fact, presently being exhibited while conditions characterized by generally shrinking operating revenues are being widely reported by NYSE-listed companies? Should such operational challenges persist (and boring Ben cautions they likely will), are there probably not more issues than can fit on a dart board whose fate portends a visit with Mother Goose Egg ($0)?

So, where's the fear? Same place as last year? Right about where that bear stuffing should go, Shemp? This really is no laughing matter when you consider the "safe from Washington" tech sector...

Seeing any pattern here?

Considering that advancing issue participation on the Pump and Dump over the duration of COMP's advance off March bottom has been markedly thinner than has been the case on the NYSE ... and considering that COMP remains well-shy of where it traded last September when Lehman bit the dust (that's less than 52 weeks ago) ... the presently wider differential between new 52-week highs and lows on NASDAQ represents something of a disconnect.

Denial is believing the 21st century's most significantly under-performing sector — tech — could somehow be immune to systemic issues now more greatly affecting the entire asset class called equity.

Complacency is continuing to hold those greater numbers of near-death issues that have been trading on NASDAQ in relatively flat-line fashion since the lug nuts came off the tech sector, post-Y2k.

Funny, too ... tech was clobbered last year despite similar belief the sector was immune to trouble among financials.

Funny ... it appears there presently are even more believers in this mistaken, tech immunity thesis.

Tragically, those who fail to learn from the past are condemned to repeat it. When the consequence is great financial loss this is no laughing matter! But what can I do?

Well, for one, not get worked up about my UltraShort ETF position, because I believe it still sits like a vulture waiting to pounce. Given funny similarities in underlying conditions, now versus last year, just prior to everything coming unglued, I see a coming day when I am laughing all the way to the bank (that is if I can find one still solvent).

Truly, I fear the stock market could soon collapse. More on this tomorrow...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Moreover, credit markets last December were likewise incapable of meeting their end of the bargain in the "Inflate or Die" status quo built up via structured finance over the past couple decades or so. At least in December, though, some larger number of long positions were being sold into strength. Today, however, there are relatively fewer being put up for sale...

Maybe in the volume comparison, now versus last December, I am splitting hairs. Yet at the expense of being repetitive, the market climbs a wall of worry that is reflected by increasing numbers of shares offered up for sale.

Here we are, seven months later ... the S&P 500 trades not much higher than in December ... credit markets remain dysfunctional ... and long equity positions are being held more tightly than ever ... when instead, if there were any fear (which one would think is extraordinarily justified here), increasing numbers of shares would be offered up for sale ... particularly considering how far the market has run since March bottom.

There's nothing doing! And this, I submit, is an objective demonstration of complacency.

This condition is all the more disturbing given that, technically, under the covers, bearish divergences (everywhere above!) plainly advise caution. Indeed, rather than supporting yesterday's view that, a period of relative buoyancy might persist over coming weeks, a spectacular, out-of-the-blue, garden variety collapse could be equally as likely.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Tuesday, July 21, 2009

Most seasoned stock market players talk down the Dow Jones Industrials. The claim is, what, 30 stocks? How representative is this of the market?

Well, in a former day when bankruptcy was less prevalent the Dow 30 represented about 35-40% of the U.S. stock market's entire capitalization. So, if Wall Mart and its 20% share of the retail market is a helpful benchmark, why not, then, the Dow Jones Industrials?

There is serious money locked up in the thirty companies making up this index. Its performance is telling, then.

First thought is Carl Spackler... "Bark like a dog!" Large caps are significantly under-performing the broader market. This speaks of the capital starvation that is the larger macro issue no one is considering. Where better to raise capital than those companies flush with vested interest?

And that volume! It's a picture of pathetic. Why it's almost as meager as what accompanied the index's advance at the start of the year. And we all know what followed then.

I mention this because the Dow Industrials' price-RSI performance is quite similar here. RSI is confirming the index's push into nominal new high ground, post-March bottom, much like was the case at the start of the year.

Technically speaking, the end is near. Practically speaking, however, so long as there are suckers willing to continue holding their equity stakes, confusing a short squeeze with a "new bull market," then just how much the market might hold up is something of a quandary.

My better sense supposes a relatively buoyant period might carry us into autumn. This is not to say the present short squeeze likely will persist unchallenged. Rather, it only is to suggest that, near-term, the market's projected decline probably will not unfold in a devastating straight line. Instead, something like what unfolded going into early-February might be in order here.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Monday, July 20, 2009

Well, what do you know. The July OEX contract goes off the board and once again call open interest dwarfs put open interest.

So, the question is whether there's still time to [ever more slowly (see volume)] offload more bloated, overpriced equity inventory ... or do the likes of CIT expose how huge is the hole left by the implosion of structured finance?

In other words, is it about time for capital to be raised by those who have become trapped?

Shemp says put your blinders on and buy, buy, buy! Lest we forget, though, Cramer was singing "Happy Days are Here Again" right around this time last year, too. One wonders how many were mercilessly trimmed before "rigor" finally in September '08 found reason to sell?

As far as I am concerned the volume behind the market's most recent advance ... in conjunction with a typical RSI pattern coincident with a 5-wave advance ... along with momentum that's still fading (MACD) ... spells trouble.

The channel whose upper parallel connects to wave 1 is curious. Considering the NYSE Composite presently is bumping up against a line that first acted as resistance, then became support, and then resistance once again ... this when some measures presently shout "overbought" (McClellan 5% and 10% indexes) while others read "bearish divergence" (McClellan Oscillator and Summation Index) ... one wonders whether a 5th wave failure is in order here.

Indeed, such an outcome would be fitting the manner in which "denial" has been in evidence on the NYSE (detailed last Thursday in "Proof of Pending Doom"), because we see much the same once again coincident with NYA's recent advance...

Good lord. The breadth of participation continues to badly outpace the Composite's performance. Thus, denial apparently remains in full bloom.

Of course, this conclusion is by no means assured. However there's a brick wall that's simultaneously being hit over at the Pump and Dump...

It's probably a safe bet that NASDAQ's relative strength rocket ride on similarly subdued volume will meet its match as some among the legions of sleepy dreamers who got caught with their pants down last October cash out somewhere in the ballpark of even, which is where a handful of tech issues have recovered to.

And it is just a handful. You will be wise to recall NASDAQ's markedly muted participation since March bottom. Nothing changed over the course of this past week. In fact, underlying weakness is only all the more glaring...

Do keep these facts in mind as you hear misguided claims that, tech is leading the market higher. The truth is quite the contrary! Tech continues leading the market lower. It is only a matter of time.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Friday, July 17, 2009

Looks like I was right. The other day it finally hit me. OEX options open interest tells the story. Sell calls, jam futures higher, then unload bloated inventory to call buyers who exercise their option.

This is exactly what we've seen during expiration week since March '09 bottom. It is precisely what we have seen this week, with OEX call open interest collapsing, while put open interest continues a modest increase. Only now, with expiration looming, does put open interest finally exceed call open interest, and this for the first time in the life of the July contract. Strong hands, plainly, are selling their positions to players who wouldn't know a bear market from bear turd.

So, what next?

Wednesday's extreme buy-side RSI reading offers good reason to believe a top is at hand.

However, the boxes you see drawn above each contain a 5-wave Elliott impulse wave. Only the green box contains a complete, 5-wave sequence. So, before top is in there probably will be a bit more delusional fantasy about "recovery" coming from the up and coming crop of future McDonalds managers who by the dozen, today, enjoy a brief moment of fame on CNBC...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Thursday, July 16, 2009

There's no doubt that, NASDAQ Composite — the index tracking all shares trading on the Pump & Dump — setting a new high today, post-March bottom, was mildly disconcerting, although not unexpected. Some comment, then, on its tendency to lead the market in both directions is in order tonight...

The question is: in which direction is NASDAQ leading?

The fundamental fact that, the global financial system is bankrupt has been the subject of my commentary over recent days. Tonight, we need to get technical. We need to look under the covers and discover why no "new bull market" is developing here. This view serves to confirm the fundamental fact that, the lynch pin of the global economy — structured finance — is dead and will not be resuscitated in any way, shape or form resembling the recent past. Without the securitization market and its capacity to produce trillions of dollars of fools gold the asset class called "equity," therefore, is doomed...

Let's leave aside the fact that, since March '09 bottom upside RSI ascent is profoundly one-sided and atypical the more gradual and balanced relative strength ascent associated with bull market moves. Indeed, if the phrase "short squeeze" could be given a picture defining what one looks like, RSI spikes in March and, even more so, over the course of this week would fit the bill perfectly.

Contrarily, much like increasing volume is the very picture of the "wall of worry" the stock market is said to climb, balanced relative strength over the course of an advance similarly reflects the impact of worried sellers. That's why typical relative strength in a bull market ascends much more gradually than what we've seen since March bottom. Worried sellers — not complacent holders — are a bull market staple.

On this fact alone there is good reason to suspect all the hootin' and hollerin' about a "new bull market" is from minds gripped by fantasy. Atypical RSI ascent strongly hints that, theirs is but a fine display of wish-filled delusion not at all unlike the "new era of technological" progress that a like-minded, inside-the-box crowd swallowed hook, line and sinker to rationalize NASDAQ's explosive rise in the Y2k period.

And speaking of Y2k ... curiously, NASDAQ was holding up — indeed, markedly outperforming — relative to the more staid NYSE during that period leading up to the market's major top. This, too, was much like last summer.

Hindsight, then, provides a snapshot of relative conditions wherein "denial" can be seen manifest.

Most certainly, too, one must conclude the same is being manifest right now.

Technical proof follows. The focal point of my analysis is relative to early-January '09. You see above where the NYSE Composite stands. The index is barely positive on the year.

Now, let's see what conditions under the covers look like...

Gadzooks! A "new bull market" at least has some appearance of being a credible claim. In fact, it seems there's hidden, underlying strength backing NYA's advance off March bottom ... with cumulative advancing issue participation over the duration suggesting that, once those issues causing NYA to "lag" finally catch a bid, the index will soon "catch up" in a manner in keeping with its better underlying technical condition.

Yet the real question is whether those greater number of cumulative advancing issues behind NYA's advance to date reflect something far less bullish? Is the divergence between the index and the cumulative advance-decline line, indeed, a danger sign? Does the index's lag in the face of markedly greater cumulative advancing issue participation represent a cold, hard reality ignored by those driving the broader array of NYSE-listed issues higher?

Could this be a vivid display of that very denial typically preceding a panic?

Methinks yes. Lo and behold! NASDAQ, in its typical leading way, offers all the proof we need that denial is the order of the day...

Much like the situation leading into Y2k top ... and much like last summer ... once again NASDAQ outshines the NYSE. COMP is solidly positive on the year, whereas NYA is barely so.

Now, you might be thinking underlying advancing issue participation on the Pump and Dump would be even more phenomenal than has been the case on the NYSE.

Ha! You would be so wrong...

The greater bulk of overpriced junk traded on the exchange favored by boiler rooms all across America just can't find a bid. All the heavy lifting is being done by a relative handful of issues. No matter which way you slice this, there is nothing bullish to conclude here. There's not even the appearance!

Yet, despite this, COMP is leading the charge off March '09 bottom. Those fewer components behind NASDAQ's advance continue their ascent absent broader participation necessary for sustaining a bull market. Money simply is not flowing into a wide swath of issues trading on the exchange consistently leading the stock market at large.

On the surface COMP appears to be leading. However, under the covers it remains in a death spiral. Yet this fact is ignored by those bidding up the handful of issues behind COMP's advance. There's a word for this...

Denial.

So, returning to the question I began with — namely, which direction is NASDAQ leading the market? — the answer is lower. And because there is no more fools gold being created on Wall Street (not even Jesus could resurrect the securitization market), it is only a matter of time before equity capitulation seizes the day...

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

Be Strong

Matthew 24:13

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